Advantages and Disadvantages of Various Methods of Payment

THEME 5 | Lesson 15: Cash or Credit?

VISUAL

15.1

Advantages and Disadvantages of Various Methods of Payment

Payment Options

Advantages

Disadvantages

FINANCIAL FITNESS FOR LIFE: Teacher Guide Grades 6-8

?Council for Economic Education

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VISUAL

15.2

THEME 5 | Lesson 15: Cash or Credit?

How a Check Works

1. Chad writes a $50 check to pay for music CDs. 2. The shop owner sends Chad's check to her bank (A). 3. Bank A processes Chad's check and sends it to Chad's bank (B). 4. Bank B deducts $50 from Chad's checking account, and

electronically notifies Bank A of the transaction. 5. Bank A electronically adds $50 to the shop owner's account. 6. Bank B sends Chad his cancelled check (or copy) for this record.

$50 check $50 check

Music Shop

$50 check

Chad

Writes a check for $50 to the Music Shop

$ BankA Music Shop's Bank Adds $50 to Music Shop Account

chsetcaktCehhmaaBesdancnitlnketahmBraeotndnothtthiefliyes

Bank B

Chad's Bank Deducts $50 from Chad's Account

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FINANCIAL FITNESS FOR LIFE: Teacher Guide Grades 6-8

?Council for Economic Education

THEME 5 | Lesson 15: Cash or Credit?

VISUAL

15.3

How a Credit Card Works

? Chad uses a credit card issued by ABC Credit Card Company to purchase video games.

? The store owner swipes Chad's credit card past a scanner.

? ABC Credit Card Company is quickly notified that Chad has requested $50 worth of credit , and if ABC Credit Card Company approves the charge, a credit sale occurs. The credit card company would add the amount of the item purchased to the store's bank account less a processing fee. The processing fee would go to the account of the store's merchant processor.

? ABC Credit Card Company sends Chad a statement that includes a record of his $50 purchase at the video store.

? If Chad has no balance on his credit card from the previous month, and pays the $50 before the due date, he usually won't have to pay any interest.

? If Chad chooses to pay only part of the $50, he will be charged interest on the remaining balance.

Start Here

Chad

If Chad pays the $50 (and doesn't charge anything else), he pays no interest.

If Chad chooses to pay only part of the $50, he will be charged interest on the unpaid balance.

Video Game Store

ABC Credit Card Company adds money to the video store's account and to the merchant processor's account if the charge is approved.

ABC Credit Card Company sends Chad a bill for $50

FINANCIAL FITNESS FOR LIFE: Teacher Guide Grades 6-8

?Council for Economic Education

145

VISUAL

15.4

THEME 5 | Lesson 15: Cash or Credit?

Lesson 15 Assessment: Answer Key

Rubric for Evaluating Panel Discussions

Topics to be covered in panel discussion

Advantages of using credit

Discussed thoroughly Briefly discussed with

and accurately

some inaccuracies

Not discussed

2 points

1 point

0 points

Disadvantages of using credit

APR

Grace Period

Annual fees

Transaction fees (late fees)

Minimum payment and total cost

Interesting statistics about credit

Recommendations for wise credit use

How inflation may affect decisions about use of credit

The opportunity cost of credit

Totals

Grand Total of Three Columns

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FINANCIAL FITNESS FOR LIFE: Teacher Guide Grades 6-8

?Council for Economic Education

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